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Question 3 Ju produces and sells cotton jerseys. The company uses variable costing for internal purposes absorption costing for external reporting. At year-end, financial information must be converted variable costing to absorption costing to satisfy external requirements. At the end of 2018, management anticipated that 2019 sales would be 20% above 2018 level production for 2019 was increased by 20% to meet the expected demand. However, conditions in 2019 kept sales at the 2018 unit level of 40 000. The following data pertain to 2019: 2018 Selling price per unit Sales (units) Beginning inventory (units) Production (units) Ending inventory (units R20 40 000 4 000 40 000 4 000 2019 R20 40 000 4 000 48 000 Production costs per unit (budgeted and actual) for 2018 and 2019 were: Material R2.25 Labour R3.75 Overhead R1.50 Total R7.50 Annual fixed costs for 2018 and 2019 (budgeted and actual) were: Production R117 000 Selling and administrative R125 000 Total R242 000 The predetermined OH rate under absorption costing is based on annual capacity of 60 000. Any volume variance is assigned to cost of Goods Sold. Required: 3.1 Prepare an Income Statement using variable costing. 3.2 Prepare an Income Statement using absorption costing. 3.3 Reconcile the profits

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